ALEX BRUMMER: Deep clean for the Old Lady

Coming as it did hard on the heels of the payment protection insurance, Libor and money laundering swindles, the alleged manipulation of foreign exchange markets has received much less attention.

Yet for London, the global centre of the $5.2trillion currency markets, it is hugely important and goes to the heart of a market that employs thousands in the City and is a rich source of income for balance of payments and the taxpayer.

In a market so vast, there is always room for disguising price rigging operations.
There is not a regulator or enough computer power in the world to decipher the complexities, especially when many of the trades take the form of forward derivative contracts and are accompanied by sophisticated hedging operations.

Alleged manipulation: The suspension of a Bank of England official for failing to follow proper procedures relating to the foreign exchange markets will ratchet up the focus on this largely opaque corner of the City

In such circumstances it is human intelligence that becomes important. The suspension of a Bank of England official for failing to follow proper procedures relating to the foreign exchange markets will ratchet up the focus on this largely opaque corner of the City.

The apparent reason for the suspension is that the Bank insider involved failed to pass on the market intelligence he had been given so that it could be checked out.

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This is by no means the first time the Bank has found itself in such a position. At the time of the Barings crash in 1995 the first canary in the mine was the Bank for International Settlements in Basel that passed on a warning something odd was taking place in Barings trading in Singapore. The Bank had some concerns about Barings but failed to follow up on the BIS alert.

At a very different level the former deputy governor of the Bank of England, Paul Tucker, was dragged into the Libor scandal in 2012 when then Barclays chief executive Bob Diamond disclosed he had taken an aide memoire of a phone call in which Tucker allegedly said it would be better if Libor rates didn’t rise any higher. Diamond passed the message on to his trading staff, who acted as if they had been given an order.

The Bank cannot afford to talk to the markets except with the utmost clarity, nor should it ever discount intelligence even if this may at first seem like unsupported gossip.

In the case of the foreign exchange markets, the whispers about rigging look to contain more than an element of truth.
No less than 22 traders across nine banks and three continents have so far been suspended and dismissed because of alleged involvement in fixing foreign exchange markets. None of this should come as a complete shock to anyone involved in currency markets.

In 2006 the Bank of England, as part of a foreign exchange joint standing group, was aware of efforts to move Forex prices at the time of the fix by players with no direct interest in the trades.
Indeed, there have been a series of alerts down the years according to 188 pages of minutes released by the Old Lady.

When Libor erupted the Bank could at least claim it was the job of the British Bankers’ Association to sort out the mess and the Bank was simply acting as a well-informed post box. There is no such escape route this time.

Bonuses galore

When a Barclays chief executive decides to go walkabout in Africa, or confides that the bank will be on a ‘death spiral’ unless it retains top casino bankers, one instinctively knows bad stuff is on the way.

The sob story from Antony ‘go-to’ Jenkins about needing to retain his key executives with pay beyond the dream of avarice is doing the bank’s reputation enormous harm. In the latest disclosure we learn the very same Barclays that sends damaged customers off to the financial ombudsman for PPI compensation, feels it is fine and dandy to turn 481 of the bank’s staff into millionaires.

Never mind that shareholders were asked as recently as September to stump up £5.8billion in a rights issue because the bank’s board has been distributing too much money rather than conserving capital.

Jenkins, with his potential £7.2billion pay day, can afford the finest champagne.
But it is befouled water for customers and investors.

Flowers effect

If anyone thought the rest of the Co-operative movement could be spared the damage done at the bank forget it. As we report today, allegations about the high living of former chair, the Reverend Paul Flowers, caused Co-op food shoppers to stay away.

Having failed at banking the Co-op is also pulling out of supermarkets, closing up to 200 larger stores in a big bet on corner shops.
Hopefully, the train hasn’t already left the station.